FBAR Non-Filers Beware: Either Tax Fraud OR Filing a False Tax Return Can Result in Deportation

Background, Mr. and Mrs. Kawashima were legal residents of the United States having moved to Los Angeles from Japan in 1984. According to an article in the Los Angeles Times they opened several sushi restaurants in the West San Fernando Valley area of Southern California. They were accused of violating various criminal tax laws, and in 1997 Mr. Kawashima pled guilty to a single count of violating Internal Revenue Code (IRC) Section 7206(1) (filing a false tax return). Mrs. Kawashima pled guilty to IRC Section 7206(2) (aiding and assisting in the filing of a false tax return). The tax loss was around $245,000. This would have included interest and penalties so the actual tax would have been much lower. It is possible that the Kawashimas pled guilty to charges under IRC Section 7206 to avoid the IRS bringing tax evasion charges under IRC Section 7201. Tax evasion carries a maximum penalty of 5 years, and a $250,000 fine; whereas filing a false tax return "only" has a penalty of $100,000 and 3 years in prison.

Neither the 9th Circuit opinion, nor the Supreme Court opinion stated whether they served any jail time, but according to the Los Angeles Times they repaid the full amount due to the IRS. The Kawashimas probably assumed that their tax problems ended there, but in 2001 the Immigration and Naturalization Service (INS), as it was then known, brought removal proceedings, against the Kawashimas seeking their deportation alleging that they had committed an "aggravated felony." These proceedings were brought pursuant to 8 USC § 1227(a)(2)(A)(iii) (stating that "[a]ny alien who is convicted of an aggravated felony at any time after admission is deportable"). An aggravated felony is defined in 8 USC Section 1101(a)(43)M)(i) as any offense that "involves fraud or deceit in which the loss to the victim or victims exceeds $10,000."

The Kawashimas argued that filing a false tax return was not an aggravated felony. They relied on a related section of the law which specifically states that the commission of tax fraud pursuant to IRC Section 7201 is an offense which may lead to deportation. From that the Kawashimas criminal tax lawyers concluded that Congress intended that the only tax crime which would qualify for deportation is tax fraud, and not any other lesser tax crime.

Unfortunately for the Kawashimas in a divided 6-3 opinion the Supreme Court disagreed, clearing the way for the Kawashimas deportation. In her dissent, Justice Ginsburg pointed out that as a policy matter the majority made a bad choice because it would discourage immigrants from pleading guilty to tax crimes since in addition to any jail time they would be exposed to being deported.

Criminal tax lawyers will need to advise their alien clients of this distinct possibility as one of the many factors to take into account when deciding whether or not to plead guilty to any tax crime. The concern for FBAR (foreign bank account report) non-filers is that without regard to whether or not failure to file an FBAR is a deportable offense individuals who do not file FBARs generally have filed false tax returns by checking the "no box" on Schedule B signifying they don't have a foreign bank account when in fact they do.

If you have been contacted by the IRS Criminal Investigation unit, or have any criminal or civil tax problems contact the tax litigation attorneys at Marini & Associates, P.A. for a confidential consultation.